ELD. Executive Liability Division. Directors, Officers & Employment Practices Liability Insurance

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1 *Dir, Off, Nonprofit 2/21/07 10:38 AM Page 1 Directors, Officers & Employment Practices Liability Insurance A Guide for Non-profit Organizations ELD 1515 Woodfield Road Suite 500 Schaumburg, IL Phone: Fax: ELD@gaic.com Please visit us at: The coverages described in this brochure are summarized and do not contain all of the applicable terms, conditions and exclusions. Refer to the printed policy form and policy quotation for complete information on coverage limitations. All coverages are subject to applicable state law and may vary materially from the stated information. Admitted policies are underwritten by Great American Insurance Company or Great American Insurance Company of New York. The following registered service marks are the property of Great American Insurance Company: Great American, Great American Insurance Group and ExecPro. ExecPro Products 2007 Great American Insurance Company. GAIC 1678 (1/07)

2 How Would a $300,000 Discrimination Claim Affect Your Organization? The currently has the following products available:* for Public Companies for Private Companies for Non-Profit Organizations for Financial Institutions for Canadian Companies for Community Associations** (including Condominiums and Homeowners Associations) Employment Practices Liability (EPL) Fiduciary Liability Insurance Fiduciary Liability Insurance for Multiemployer Plans Professional Liability Insurance for Safety Consultants Private Solution (D&O, EPL, Fiduciary & Crime Insurance Package for Private Companies) A-Side Only Directors and Officers Liability Insurance * All products may not be available in every state ** Available exclusively through Distinguished Programs Insurance Brokerage LLC How about a $1,000,000 claim against your Organization for a failed grant commitment or a $60,000 claim for wrongful termination? Who would pay for your costs of defense? There once was a time when your community service mission and your managerial obligations were two very different things. No More. In today's increasingly complex non-profit environment, the consequences of any given decision can cross the line and put a decision maker's personal assets at risk. Non-profit directors and officers are routinely named in litigation arising from a variety of situations. Providing protection for many of these exposures is the business of Great American Insurance Group's. You may have considered buying Directors' and Officers' Liability Insurance (D&O) for your organization, but thought the coverage too restrictive, the price too high and the likelihood of a lawsuit too remote. Think again. Great American's offers a Directors', Officers' and Employment Practices Liability policy for Non-Profit Organizations. This policy was developed to address a wide variety of exposures with preferred rates and retentions for non-profit organizations.

3 Why Directors and Officers Liability Insurance? Actions brought against directors and officers based upon actual or alleged wrongful acts arising from the execution of their day-to-day duties and management functions can result in a D&O claim. D&O Liability insurance can protect the personal assets of directors and officers from catastrophic financial loss in the event of such a claim. The D&O policy also provides coverage for the organization. discrimination based upon sex, race or age. Legislation such as the Civil Rights Act of 1991 and the Americans With Disabilities Act of 1990 have created a legitimate concern over the increasing number of employment suits. Damages stemming from these employment suits can be substantial. Many times a costly factor can be the expenses associated with the defense of the claim. A wrongful termination case recently settled for $15,000, but the costs of defense exceeded $60,000. A sexual harassment claim which was pending for over three years, resulted in a settlement of $30,000. However, costs of defense were in excess of $225,000. It's becoming more common for directors to require that an organization purchase D&O liability insurance before they serve on its board. It is easy to understand why. Litigation expenses alone can amount to millions of dollars. D&O coverage can help protect the directors and officers from personal financial loss relating to those expenses. How Will D&O Protect Us From Employee Actions? Although directors and officers can be exposed to a wide variety of lawsuits, those arising from employment actions are increasing most rapidly. The most common suits are for wrongful termination, sexual harassment, and When Do Lender or Creditor Suits Occur? Lender/creditor suits may arise if an organization has violated certain loan covenants or is unable to pay debt because of financial difficulties; the most extreme case being bankruptcy. If an organization enters into bankruptcy, whether voluntary or involuntary, allegations of negligence, mismanagement, or breach of fiduciary duties may result. A lender sued the directors and officers of an organization. The case was settled for $7 million.

4 What Are Some Examples of Governmental Suits? Governmental actions may arise from a variety of situations, such as antitrust allegations, fraud, tax issues and civil rights. The Federal government indicted the president of an organization for bribery. The criminal trial resulted in an acquittal, but defense costs and fees incurred were over $2 million. A non-profit day care center was sued by the State Attorney General alleging the center abused the state reimbursement system by seeking payment for expenses incurred for its related for-profit child care enterprise. The state sought more than $1.5 million in misused funds. Is your Organization Prepared? $50,000 A housing authority brought suit against its independent accountants alleging the commission of various errors and irregularities by them after the discovery of infractions in a loan program, including the possible embezzlement and conversion of assets by a former employee. The accountants filed a countersuit for contribution against past and present directors and officers of the authority. $450,000 A former director of development for a non-profit organization alleged sex discrimination and breach of implied contract. The jury returned a verdict in favor of the employee for the sum of $560,000. The case settled post-trial for $360,000, with another $90,000 incurred for defense costs. $32,000 A volunteer firefighter who was also a member of a local water association filed suit seeking a declaratory judgment to void the transfer of the assets of the association to neighboring cities which would result in the loss of his volunteer position. The case was successfully defended to the tune of over $32,000 in costs of defense. $275,000 Two former employees of a non-profit social agency were fired and charged with theft for stealing from the agency. They were tried and eventually acquitted of the charges. They filed suit against their former employer for false imprisonment and malicious prosecution. The case settled with each employee receiving a monetary award.

5 *Dir, Off, Nonprofit ELD 2/21/07 10:38 AM Page 9 G R E AT A M E R I C A N S $320,000 A local athletic conference was sued in federal court by a school for alleged discrimination when certain conference members expressed safety concerns with having teams of young basketball players traveling to an inner city school. This very contentious litigation, which made news headlines, settled for nearly $130,000 and another $190,000 was incurred to defend the claim. $50,000 A local animal cruelty society was sued by a municipality after the city decided to pull all its funding and handle dog tag and related services through the county. The society was unable to reimburse the funds and this resulted in litigation. Settlement and related costs of defense were incurred. $30,000 A former executive director of a local library district brought a claim for retaliation when she was terminated soon after filing a claim for workers' compensation benefits. She alleged she was injured when books fell on her head. The claim eventually settled for nuisance value, but not before significant defense costs were incurred. F O R M O R E I N F O R M AT I O N :

6 Defense costs continue to make up a significant portion of overall D&O losses. Such costs vary by type of claimant. Is your Organization prepared to handle the costs associated with defending a lawsuit by an employee, supplier, student or government agency? Employees/Unions/ Physicians Defense Cost: $18, 667 Payment to Claimant: $33,000 Competitors/ Suppliers/Contractors Defense Cost: $133,500 Payment to Claimant: $130,000 Governmental/ Other Defense Cost: $334,126 Payment to Claimant: $64,000 As you can see, the cost of defending and settling lawsuits can be devastating for a non-profit organization. Who knows what other issues may be raised in the future or what changes your organization may go through, which may give rise to litigation? Directors, Officers and Employment Practices Liability Insurance will help mitigate these unknown exposures. Customers/Clients/ Students Defense Cost: $435,000 Payment to Claimant: $125,000 $0 $100,000 $200,000 $300,000 $400,000 $500,000 * Source: 2005 Tillinghast- Towers Perrin D&O Average Cost Liability Survey Need an application or specimen policy? Visit our Web site, and click on the Agent's Desk section. There you can download applications and policies that are available in your state. Upon completion of the form(s) you can submit them electronically or you can fax them to If you are an applicant, be sure to note your broker's contact information at the bottom of the application.